ClusterSeven, a company that does enterprise spreadsheet management, thinks the Public Company Accounting Oversight Board is going to expect more auditing firms to look more skeptically at their clients' spreadsheets.

Ralph Baxter, CEO of the London-based company, stopped by the offices today to discuss his company and the implications of a recent PCAOB report on the first year of implementation of Auditing Standard No. 5, popularly (or maybe not so popularly) known as AS5.

The PCAOB issued the report last month on how well auditing firms seemed to be complying with AS5, which is supposed to make audits more efficient and risk-based (see PCAOB Sees Room for Improvement in AS5 Audits). I couldn’t recall the reference to spreadsheets in the report during my meeting with ClusterSeven, and as far as I can see, there’s only a passing mention of them. The PCAOB notes that in some instances, “auditors did not test controls over applications that processed financially significant transactions, including important manual spreadsheets."

However, Baxter believes the report shows that the PCAOB expects companies and their auditors to do a better job of managing the plethora of spreadsheets at their disposal. His company’s software takes note of when there is unusual activity and reprogramming of spreadsheets, and when users seem to be misusing the files. ClusterSeven’s software could help a company, and its auditors, put in internal controls that might potentially help safeguard against illegal manipulation of spreadsheets and their underlying data. At least, there would be an extra level of control in place for spreadsheets, and the PCAOB might take note when its inspectors turn up at the door.

While a great many vendors of various types of accounting and planning software tout how their products help eliminate the need to resort to spreadsheets for tasks such as budgeting and forecasting, the fact remains that spreadsheets are likely to remain with us for a long time to come. Microsoft can certainly take comfort in that fact, although Google's online spreadsheet software could pose more of a challenge if enough companies start trusting their financial data to reside out in the ether somewhere.

Spreadsheets are oftentimes the place where companies and financial institutions try out new forms of analysis and trading strategies. They allow for innovation, but they also permit an all-too-easy way to manipulate financial data. That may encourage the PCAOB and its inspectors to keep a closer eye on spreadsheets, and on the auditing firms that should be carefully scrutinizing such files.